One of the great business stories of today is how Microsoft is reinventing itself in the face of a totally changed industry. With the company turning 40, The Economist has a look at the business in its middle age.
The Economist concludes CEO Satya Nadella is making the important changes to the business that founder Bill Gates couldn’t make because he was too protective of the company’s core products and that Steve Ballmer, Nadella’s predecessor, wasn’t interested in making as he sweated the existing assets.
As this blog has pointed out before, The Economist notes the profit margins of the cloud and mobile services Nadella is focusing on are far slimmer than those Microsoft are used to from their server and desktop products.
Those fat profit margins were the reason why Nadella’s predecessors had little reason to refocus the company but towards the end of Ballmer’s leadership it was clear Microsoft couldn’t resist the shift for much longer.
Microsoft’s dilemma was clear to the stock market as well with The Economist having a chart showing the relative performance of IBM, Microsoft and Apple over the last 35 years.
When Microsoft peaked in the late 1990s, the company was worth over twenty percent of the total tech sector’s valuation – today Apple has stolen most of that value.
A particularly jarring from The Economist’s graph is just how much IBM dominated the tech sector a generation ago and its steep decline following the introduction of desktop computers.
IBM’s decline in its dotage is exactly the fate Nadella is trying to avoid for Microsoft, with companies like Google, Apple and Amazon as competitors he has a tough task ahead of him.